The EUR/USD currency pair advanced to near 1.1535 during the early Asian session on Friday, as the US Dollar weakened in response to softer-than-expected US inflation data [1]. According to the Bureau of Labor Statistics, US wholesale costs for goods and services were flat in July, following a revised 0.1% decline in June and coming in below the expected 0.2% increase. This data, combined with Wednesday's Consumer Price Index (CPI) report, reinforced the view that inflationary pressures in the US are gradually easing, which weighed on the Greenback [1].
The core Producer Price Index (PPI), which excludes food and energy, rose 0.2% in July, underperforming the market consensus of a 0.3% gain. On a year-over-year basis, the headline PPI increased by 4.7%, while the core PPI rose 4.2% [1]. In response to these figures, market expectations for a US Federal Reserve rate hike at the September meeting dropped to a 34.8% probability, down from 40% immediately after the PPI data release, as indicated by the CME FedWatch Tool [1].
In Europe, the European Central Bank (ECB) is anticipated to raise interest rates by 25 basis points at its September monetary policy meeting. ECB President Christine Lagarde previously warned that renewed hostilities in the Middle East and a rebound in oil prices could pose upside risks to the Eurozone inflation outlook [1].
Strategists at Rabobank highlighted the conflicting forces influencing the US Dollar. They noted that if speculation about further Fed rate hikes continues to diminish, the USD could face downside pressure. However, ongoing uncertainties regarding the reopening of the Strait of Hormuz provide some safe haven support for the Dollar, especially given the market's previous short positioning at the onset of the Iran war [1].
From a technical perspective, EUR/USD maintains a mildly bearish tone in the near term, trading below the 100-day moving average and the upper Bollinger Band. The pair is supported by the middle Bollinger Band and the 20-day simple moving average, with the Relative Strength Index (14) at 58.3 indicating improving but not overbought momentum. Resistance levels are noted at the 100-day MA at 1.1565 and the upper Bollinger Band at 1.1620 [1].
CONCLUSION
Softer US inflation data has reduced expectations for a near-term Fed rate hike, weakening the US Dollar and supporting the Euro above 1.1500. While the ECB is expected to raise rates, ongoing geopolitical risks and technical resistance levels may cap further EUR/USD gains in the short term.